Cutting methane emissions from cows could inflate returns for Henderson EuroTrust

A feed additive that dramatically reduces the methane created through the digestive process of cattle could inflate returns for investors in its Dutch developer, among them Jamie Ross of Henderson EuroTrust.

DSM, a leader in the field of animal nutrition, has spent ten years developing Clean Cow, which is being introduced to markets like New Zealand.

‘We live in a world where there’s a lot of media attention on Prince Harry and Meghan [Markle] flying around the world in private jets, rightly so,’ Ross told delegates at a Sub35 event at Pewterers’ Hall, Barbican.

‘The humble cow, however, is a serial offender through methane emissions and actually accounts for a significantly higher portion of carbon emissions than the aforementioned people.’

The product effectively halves methane emissions from cows. Feeding Clean Cow to one cow reduces emissions by the equivalent of 127,000 smartphone charges. Feeding it to three is the same as taking a Land Rover Discovery off the road and to one million is equivalent to planting 45 million trees.

For Ross, DSM illustrates the power of long-term thinking and innovation. ‘For us, DSM is a class example of a business that is investing for the future.
Investing in a way that benefits other people is a very powerful modus operandi of generating returns over time.’

Simple process

Ross runs a concentrated portfolio of 40 companies selected by virtue of a ‘very simple process’. His focus is on bottom-up research and on seeking to understand the companies he invests in ‘better than anyone else’.

He favours two types of opportunities. The first is ‘compounders’ – quality companies that offer a high return on invested capital, £20 on £100 for example, whereby his expectation is higher than the market’s.

‘Return on invested capital generally fades over time, but we see with these investments a slow fade whereas we believe the market is pricing in a much faster fade.’

He gave the example of Vivendi, a French conglomerate, which owns Universal Music Group. ‘There are aspects of the music industry that are hugely attractive and classic features of a compounding business,’ said Ross, pointing to revenue growth driven by streaming and a ‘real opportunity’ for future growth from emerging markets.

The second is ‘improvers’ like DSM. At first glance these are not particularly interesting and have a return profile of, say, £2 or £3 on £100.

‘If you think those businesses can go through some sort of change and the return profile can improve there can be a very substantial opportunity for the re-rating of that business over time,’ said Ross.

‘If everyone knows a business is getting better it will be in the money; these need to be businesses that we see improving beyond what the market thinks.’

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